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November 26, 2020

Authorities faces legal challenge on tax concession for Naya Pakistan certificates

Business

November 26, 2020

KARACHI: The government will face a legal challenge in giving tax advantage to investors of Naya Pakistan certificates without amending the relevant laws, sources said on Wednesday.

The government announced a deduction of 10 percent withholding tax on profit derived on Naya Pakistan Certificates (NPC), which will be final tax liability for investors. However, such provision is not available in the main tax statute – Income Tax Ordinance 2001.

“Without amending the ordinance, 10 percent may not be lawful,” a source in the Federal Board of Revenue (FBR) said. In the present statute, the tax rate is 15 percent on the profit derived on investment in financial instruments under a section (151 of the Income Tax Ordinance, 2001).

The government launched NPC earlier this month. The NPC is an initiative of the ministry of finance and administered by the State Bank of Pakistan (SBP) to offer investment opportunities to overseas and resident Pakistanis having foreign assets.

The certificates are offered up to 7 percent against investment in US dollar-denominated certificates and up to 11 percent against investment in rupee-denominated certificates.

“The return on NPCs is subject to 10 percent withholding tax, which is the full and final settlement of tax obligation on NPC profits,” a statement by the ministry of finance and SBP said.

Further, the SBP on its official website mentioned that no tax filing is required for non-resident Pakistanis and they are required only to pay 10 percent withholding tax on the profits.

The FBR sources said the central bank and commercial banks publicised the investment certificates and people are asking the tax authorities about the taxation issues related to the certificates.

A senior tax officer said the FBR has no power to revise tax rates through a statutory regulatory order and only through presidential order the rate can be revised.

The official said the government should revise the tax rate as mentioned by the central bank to make the NPC a successful scheme.

“To make it legal, the government has an option to make an amendment in the second schedule of Income Tax Ordinance 2001 for NPC. The amendment can be introduced through presidential ordinance, for 120 days,” said the official said. “The presidential ordinance can be further extended for more 120 days. Before lapse of ordinance, the government appropriately amends the Income Tax Ordinance 2001 through Finance Act, 2021.”